Who isn't to blame for the housing crisis (and who is)

John Perry · Housing and Immigration

The home secretary last week criticised the ‘uncontrolled mass immigration’ that took place before 2010 for its effects on housing and public services. The latest census data show that half the population growth in the decade after 2001 was due to immigration. Theresa May is certainly right to say immigration affects housing demand, but the question is how much. According to May, ‘more than one third of all new housing demand in Britain is caused by immigration’. Nick Boles, a minister under pressure because of his plans to build on the countryside, told the Daily Mail that ‘100,000 new homes a year will be needed to accommodate’ migrants.

What I think they both mean is that one-third of new household formation is due to migration. This is based on the most recent (2008) projections, which expect the numbers of households to grow by 232,000 annually up to 2033; just under two-fifths of this will result from migration. However, these figures assess housing need; demand in the owner-occupier market depends on people’s incomes and their access to mortgage finance.

May went on to say that house prices are 10 per cent higher than they otherwise would be as a result of immigration. The Telegraph glossed this as ‘curbing mass immigration could bring down house prices’, and referred to figures presented to the House of Lords Select Committee on Economic Affairs by the economist Stephen Nickell in October 2007.

It is instructive to look at what Nickell actually said.

The drivers of the rise in house prices have been the continuing rise in household incomes, the rise in the number of households, and the comparatively low levels of house building. I think, of these, the rise in household incomes is the key.

If these factors had stayed as envisaged in 2007, Nickell calculated that by 2026 house prices would have risen to more than ten times average earnings (against a historical average of four times). If, on the other hand, net migration were cut to zero, over the 20-year period prices would still have risen to more than nine times average earnings. So, as Nickell pointed out, ‘you do not solve the housing problem by curtailing immigration’. (Boris Johnson has also said he ‘cannot see the logic’ in May’s remarks, but only because he doesn’t want house prices to come down.)

Soon after Nickell gave his evidence to the Lords, the economy crashed, house prices fell and house building fell with them.. In the five years to 2007, more than 160,000 new houses were built annually. In the four years from 2008, on average there have been 103,000 a year. Over the same period, net migration has gone up then down, and is now (at 183,000) roughly at the levels cited by Nickell.

However, while Theresa May is right to say house prices would be slightly lower if net migration were reduced to zero, she also knows that will never happen. Were it instead to fall to 100,000, as government policy requires, the effect on prices would be much more modest – and probably indistinguishable, given that the economy is on standstill and house building has only just recovered from its lowest levels since the war. Whether you think the main housing problem is high house prices or low building levels or both, the state of the economy and the way the government responds to it are what matter. Or as May could have said but didn’t, 90 per cent of house price growth is due to factors other than immigration.


  • 18 December 2012 at 11:06am
    raf46 says:
    This article highlights the need for hard evidence. It is easy to highlight immigration the impact of private landlords using housing as a pension and the growth of multiple occupancy all need more clarity. The introduction of the benefit cap makes this more important.

    • 18 December 2012 at 1:01pm
      John Perry says: @ raf46
      There is a good summary of the available evidence on migrants' impacts on the housing markets by the Migration Observatory -

      It is known that most (at least 75%) of new migrants go into the private rented sector. Few get access to council housing until they have been in the UK for several years, and the proportion of lettings going to foreign nationals is still low. The impact on home ownership and house prices is, however, poorly understood.